Target mkt cap
Market trends Saudi Arabia 11 October 2017
Market ownership: Gainers/ losers since Aug’ 15 7.8%
Change in market ownership 0.8%
Mutual Funds
GRE's
Strategic Partners
Corporates
Source: Tadawul, Al Rajhi Capital; Note: Sharp uptick in Mutual
funds’ market ownership In Sept 2017 likely due to transfer of 74.3% SEC stake held by government to PIF
Individuals’ ownership continues to stabilize for the third consecutive month 67.0% 65.0% 63.0% 61.0% 59.0%
+650 bps
33.0%
31.0% -520 bps
29.0%
Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17
27.0%
Saudi Institutions market ownership
Saudi Individuals market ownership - RHS Source: Tadawul, Al Rajhi Capital
Major sectoral gainers/ losers in last 1 months
12%
% change in sector index level
8.2% 5.9%
8%
3.3%
4%
0% -4%
-3.7%
-8%
-5.1%
Tel Svc
Phar, Bio & LS
Comm & Prof Svc
Cap Goods
Media
Food & Bev
-8.3%
-12%
Source: Tadawul, Al Rajhi Capital
*Note: Above data is until end of September 28, 2017
Mazen Al-Sudairi Head of Research Tel +966 11 211 9449, [email protected] Nivedan Reddy, CFA Senior Research Analyst [email protected]
What moved the market? Sept 2017: Heavyweight stocks weigh on TASI
-0.9%
-1.7%
-4.5%
Individual Portfolio investors
10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0%
TASI was flat m-o-m in September, even as average oil price (WTI) was up 3.7% during the month. Tracking rise in oil and product prices, leading petrochemical firms such as SABIC, Yansab, Kayan and Sipchem rose between 4-11%, however, a sharp down-move in index heavyweights such as Almarai (down 13%) and STC (down 6%) weighed on TASI. The other heavyweight i.e. banking sector was flat during the month. TASI traded value seems to have stabilized in the last three months. In 1H 2017, the TASI traded value was down 37% y-o-y, however, it was up 1% in 3Q 2017 (July-Sept). The y-o-y rise in 3Q traded value is partially explained by higher number of trading days (as Ramadan holidays shifted to Q2 this year). However, even removing the effect of holidays, the average daily traded value (ADTV) seems to have stabilized at similar levels as last year for the second consecutive month. One of the factors which can potentially explain this trend is the decline in selling by Saudi individuals (chart 5), something that we first highlighted in the previous month’s report. The individuals’ market ownership, which consistently declined, losing 530bps market ownership between August 2015 to June 2017, has now stabilized for the third consecutive month. Key takeaways: (a) Lower HNWI/ IPI selling stabilizes Saudi Individuals’ market ownership: As stated in August 2017 market report, Saudi Individuals’ ownership consistently declined since August 2015, losing 530bps over the last 2 years. However, the ownership of Saudi Individuals’ appeared to have stabilized over the last three months, mainly led by lower net selling and/or some instances of net buying by HNWIs and IPIs (together hold 22.9% of overall market, and account for 84% of Individuals’ category). As discussed in our previous report, this trend is worth watching. If this trend really marks the long term reversal of selling by Individuals (mainly HNWIs and IPIs), it is positive for the TASI traded value as Saudi Individuals tend to high much higher churn vs. Saudi Institutions. (b) Transfer of SEC stake to PIF results in ownership swap from GREs to Mutual Funds: Mutual Funds’ market ownership stood at 10.3% at the end of September 2017, a significant rise of 423bps from 6.1% in August 2017. Based on our assumption, this was driven by government’s transfer of SEC ownership to PIF (likely classified as a ‘private fund’ by Tadawul). We believe the PIF holdings should ideally be classified under GREs, which makes the structure of market ownership more objective for investors. (c) REITs beat retreat: After the uptrend in July and August, REITs again witnessed price correction in September. While there was no significant rise in volatility of REITs traded value, the 5 listed REITs witnessed price correction between 2-6% in Sept. (d) Key takeaways from market positioning: The sectors with high interest (both price increase and higher than average traded value) in the September were Banks (mainly due to Saudi Fransi Bank block trade), Media and Commercial & Professional services. Conversely, witnessing low interest were Food & Staples retail, Real Estate, Healthcare, and Telecom (likely due to the government’s move to allow various VoIP apps).
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
Market trends Saudi Arabia 11 October 2017
Key trends September 2017: Heavyweights weigh TASI down TASI was flat m-o-m in September, even as average oil price (WTI) was up 3.7% during the month (up 9.3% considering end of month prices). Tracking oil and product prices, leading petrochemical firms such as SABIC, Yansab, Kayan and Sipchem rose between 4-11%, however, a sharp down-move in index heavyweights such as Almarai (down 13%) and STC (down 6%) weighed on TASI. The other heavyweight i.e. banking sector was flat during Sept. TASI traded value seems to have stabilized in the last three months. In 1H 2017, the TASI traded value was down 37% y-o-y, however, it was up 1% in 3Q 2017 (July-Sept). The y-o-y rise in 3Q traded value is partially explained by higher number of trading days (as Ramadan holidays shifted to Q2 this year). However, even removing the effect of holidays, the average daily traded value (ADTV) seems to have stabilized at similar levels as last year for the second consecutive month. Figure 1 TASI average daily trading value below long term average, but seem to be stabilizing at lower levels 16.00
12,000
14.00
11,000
12.00
10,000
10.00 9,000 8.00 Long term average: SAR5.9bn
8,000
6.00 7,000
4.00
Avg daily traded value (SAR bn)
Traded value - long term average (SAR bn)
1-Jul-17
1-Apr-17
1-Jan-17
1-Jul-16
1-Oct-16
1-Apr-16
1-Jan-16
1-Jul-15
1-Oct-15
1-Apr-15
1-Jan-15
1-Jul-14
1-Oct-14
1-Apr-14
1-Jan-14
1-Jul-13
1-Oct-13
1-Apr-13
1-Jan-13
1-Jul-12
1-Oct-12
1-Apr-12
1-Jan-12
1-Jul-11
5,000
1-Oct-11
-
1-Apr-11
6,000
1-Jan-11
2.00
TASI - RHS
Source: Tadawul, Al Rajhi Capital
Early indicators suggest ADTV for October 2017 may also continue to remain at around last year levels. However, November – December period last year had significantly higher traded value compared to June – October 2016 period, on the back of investments by ‘Private funds’. It remains to be seen if a repeat is in store this year too. Figure 2 Private fund assets significantly jumped in Q4 216 and Q2 2017, each time triggering a TASI bounce 90.0 77.1
80.0 70.0
62.3
62.2
9,000
8,000
60.0 50.0
7,000
40.0 30.0
22.9
20.0
10.9
11.5
13.3
13.7
23.5
25.8
26.2
6,000
27.4
13.8
5,000
10.0
Private Funds Assets (part of Saudi Mutual funds) - SAR bn
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
H1 2015
H2 2014
H1 2014
H2 2013
4,000 H1 2013
-
TASI - RHS
Source: CMA, Tadawul, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
2
Market trends Saudi Arabia 11 October 2017
REITs beat retreat in September 2017 The REITs traded value has been highly volatile, especially in the initial few months of their listing. As we mentioned in the previous reports, the traded value listed REITs comprised as high as 20% of the total Tadawul traded value on some trading days. On 15 trading days in YTD 2017, the traded value of REITs accounted for 10%+ of TASI traded value. This is despite the fact that the combined market cap of all the listed REIT funds stands at just ~SAR3.5bn vs. ~SAR1,710bn market cap of TASI. The volatility in REITs traded value, which stabilized (i.e. REIT traded value
Market ownership: Gainers/ losers since Aug’ 15 7.8%
Change in market ownership 0.8%
Mutual Funds
GRE's
Strategic Partners
Corporates
Source: Tadawul, Al Rajhi Capital; Note: Sharp uptick in Mutual
funds’ market ownership In Sept 2017 likely due to transfer of 74.3% SEC stake held by government to PIF
Individuals’ ownership continues to stabilize for the third consecutive month 67.0% 65.0% 63.0% 61.0% 59.0%
+650 bps
33.0%
31.0% -520 bps
29.0%
Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17
27.0%
Saudi Institutions market ownership
Saudi Individuals market ownership - RHS Source: Tadawul, Al Rajhi Capital
Major sectoral gainers/ losers in last 1 months
12%
% change in sector index level
8.2% 5.9%
8%
3.3%
4%
0% -4%
-3.7%
-8%
-5.1%
Tel Svc
Phar, Bio & LS
Comm & Prof Svc
Cap Goods
Media
Food & Bev
-8.3%
-12%
Source: Tadawul, Al Rajhi Capital
*Note: Above data is until end of September 28, 2017
Mazen Al-Sudairi Head of Research Tel +966 11 211 9449, [email protected] Nivedan Reddy, CFA Senior Research Analyst [email protected]
What moved the market? Sept 2017: Heavyweight stocks weigh on TASI
-0.9%
-1.7%
-4.5%
Individual Portfolio investors
10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0%
TASI was flat m-o-m in September, even as average oil price (WTI) was up 3.7% during the month. Tracking rise in oil and product prices, leading petrochemical firms such as SABIC, Yansab, Kayan and Sipchem rose between 4-11%, however, a sharp down-move in index heavyweights such as Almarai (down 13%) and STC (down 6%) weighed on TASI. The other heavyweight i.e. banking sector was flat during the month. TASI traded value seems to have stabilized in the last three months. In 1H 2017, the TASI traded value was down 37% y-o-y, however, it was up 1% in 3Q 2017 (July-Sept). The y-o-y rise in 3Q traded value is partially explained by higher number of trading days (as Ramadan holidays shifted to Q2 this year). However, even removing the effect of holidays, the average daily traded value (ADTV) seems to have stabilized at similar levels as last year for the second consecutive month. One of the factors which can potentially explain this trend is the decline in selling by Saudi individuals (chart 5), something that we first highlighted in the previous month’s report. The individuals’ market ownership, which consistently declined, losing 530bps market ownership between August 2015 to June 2017, has now stabilized for the third consecutive month. Key takeaways: (a) Lower HNWI/ IPI selling stabilizes Saudi Individuals’ market ownership: As stated in August 2017 market report, Saudi Individuals’ ownership consistently declined since August 2015, losing 530bps over the last 2 years. However, the ownership of Saudi Individuals’ appeared to have stabilized over the last three months, mainly led by lower net selling and/or some instances of net buying by HNWIs and IPIs (together hold 22.9% of overall market, and account for 84% of Individuals’ category). As discussed in our previous report, this trend is worth watching. If this trend really marks the long term reversal of selling by Individuals (mainly HNWIs and IPIs), it is positive for the TASI traded value as Saudi Individuals tend to high much higher churn vs. Saudi Institutions. (b) Transfer of SEC stake to PIF results in ownership swap from GREs to Mutual Funds: Mutual Funds’ market ownership stood at 10.3% at the end of September 2017, a significant rise of 423bps from 6.1% in August 2017. Based on our assumption, this was driven by government’s transfer of SEC ownership to PIF (likely classified as a ‘private fund’ by Tadawul). We believe the PIF holdings should ideally be classified under GREs, which makes the structure of market ownership more objective for investors. (c) REITs beat retreat: After the uptrend in July and August, REITs again witnessed price correction in September. While there was no significant rise in volatility of REITs traded value, the 5 listed REITs witnessed price correction between 2-6% in Sept. (d) Key takeaways from market positioning: The sectors with high interest (both price increase and higher than average traded value) in the September were Banks (mainly due to Saudi Fransi Bank block trade), Media and Commercial & Professional services. Conversely, witnessing low interest were Food & Staples retail, Real Estate, Healthcare, and Telecom (likely due to the government’s move to allow various VoIP apps).
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
Market trends Saudi Arabia 11 October 2017
Key trends September 2017: Heavyweights weigh TASI down TASI was flat m-o-m in September, even as average oil price (WTI) was up 3.7% during the month (up 9.3% considering end of month prices). Tracking oil and product prices, leading petrochemical firms such as SABIC, Yansab, Kayan and Sipchem rose between 4-11%, however, a sharp down-move in index heavyweights such as Almarai (down 13%) and STC (down 6%) weighed on TASI. The other heavyweight i.e. banking sector was flat during Sept. TASI traded value seems to have stabilized in the last three months. In 1H 2017, the TASI traded value was down 37% y-o-y, however, it was up 1% in 3Q 2017 (July-Sept). The y-o-y rise in 3Q traded value is partially explained by higher number of trading days (as Ramadan holidays shifted to Q2 this year). However, even removing the effect of holidays, the average daily traded value (ADTV) seems to have stabilized at similar levels as last year for the second consecutive month. Figure 1 TASI average daily trading value below long term average, but seem to be stabilizing at lower levels 16.00
12,000
14.00
11,000
12.00
10,000
10.00 9,000 8.00 Long term average: SAR5.9bn
8,000
6.00 7,000
4.00
Avg daily traded value (SAR bn)
Traded value - long term average (SAR bn)
1-Jul-17
1-Apr-17
1-Jan-17
1-Jul-16
1-Oct-16
1-Apr-16
1-Jan-16
1-Jul-15
1-Oct-15
1-Apr-15
1-Jan-15
1-Jul-14
1-Oct-14
1-Apr-14
1-Jan-14
1-Jul-13
1-Oct-13
1-Apr-13
1-Jan-13
1-Jul-12
1-Oct-12
1-Apr-12
1-Jan-12
1-Jul-11
5,000
1-Oct-11
-
1-Apr-11
6,000
1-Jan-11
2.00
TASI - RHS
Source: Tadawul, Al Rajhi Capital
Early indicators suggest ADTV for October 2017 may also continue to remain at around last year levels. However, November – December period last year had significantly higher traded value compared to June – October 2016 period, on the back of investments by ‘Private funds’. It remains to be seen if a repeat is in store this year too. Figure 2 Private fund assets significantly jumped in Q4 216 and Q2 2017, each time triggering a TASI bounce 90.0 77.1
80.0 70.0
62.3
62.2
9,000
8,000
60.0 50.0
7,000
40.0 30.0
22.9
20.0
10.9
11.5
13.3
13.7
23.5
25.8
26.2
6,000
27.4
13.8
5,000
10.0
Private Funds Assets (part of Saudi Mutual funds) - SAR bn
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
H1 2015
H2 2014
H1 2014
H2 2013
4,000 H1 2013
-
TASI - RHS
Source: CMA, Tadawul, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
2
Market trends Saudi Arabia 11 October 2017
REITs beat retreat in September 2017 The REITs traded value has been highly volatile, especially in the initial few months of their listing. As we mentioned in the previous reports, the traded value listed REITs comprised as high as 20% of the total Tadawul traded value on some trading days. On 15 trading days in YTD 2017, the traded value of REITs accounted for 10%+ of TASI traded value. This is despite the fact that the combined market cap of all the listed REIT funds stands at just ~SAR3.5bn vs. ~SAR1,710bn market cap of TASI. The volatility in REITs traded value, which stabilized (i.e. REIT traded value
